[Image of: RetailWire Logo and Tagline (for print)]
 
[19 comments]

Will Walgreens be redefined by its sushi?

August 12, 2014

Being car-less on the outskirts of Logan Square, Chicago, I find myself shopping at Walgreens a lot. Big name grocers are too far away, the farmers' market is weekly and I tend to use the nearby local chain for bigger grocery hauls. Walgreens is the nearest spot for quick food purchases. I frequently eye the revolving lineup of frozen Nice! brand foods looking for something that could pass as healthy. I was surprised recently when I found the store outfitted with two new coolers filled with "fresh" grocery items, among them fruit and vegetables, sushi and something called "BBQ turkey tips" (which looked unnerving). I tried the sushi.

Admitting that I tried Walgreens' sushi tends to make people wonder how many times I had to return for antacids in the aftermath. In fact, the sushi's not bad, about what you'd expect from pre-packaged product. The reaction that the thought provokes, though, indicates an image problem Walgreens must overcome as they continue — to quote CEO Greg Wasson — "deliberately blurring the channels."

Though Walgreens still may not strike many people as a place to grocery shop (don't assume you or the people you know are average Americans), the location I frequent is not the first to stock higher-quality grocery offerings, nor does it represent the company's first foray into raw fish.

The flagship store in Chicago appeared in 2012 as an upscale megaplex for Loop dwellers and has a slew of Yelp reviews praising the in-store sushi bar. The company has also rolled out 628 Well Experience stores nationwide (as of Walgreens' Q2 earnings call), meant to feel more like grocery stores than pharmacies.

The one I frequent, though, maintains a definite drugstore vibe. Thus Walgreens seems to be taking more than one route to hybridizing store formats.

I've noticed in the past week that many of the new cooler products seem to be selling well, in particular the pre-packaged sandwiches and parfaits. Perhaps they fill a unique local need. (There has been an onslaught of new expensive gastropubs here, but notably few moderately-priced, no-frills eateries.) The coolers are placed near the relatively small store's checkout, too, which seems wise in the way of promoting health-conscious impulse buys.

Whether Walgreens' store format tweaks and revamps are successful could vary from store-to-store, neighborhood-to-neighborhood, but this one seems successful. I bought more sushi on my last visit, and the cashier mentioned that it sold well. No word on the turkey tips.

FINANCIALS:     [NYSE:WAG] [ ]

Discussion Questions:

Does the expansion of Walgreens' fresh food offerings have the potential to redefine its role in urban markets and elsewhere? What factors play into the success or failure of these initiatives in a particular store or market?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Do you think Walgreens will expand, maintain or reduce space for groceries in its stores over the next five years?

Comments:

Here in the south we have gas stations that sell sushi too, but they call it bait :) If the market wants it, why shouldn't Walgreens sell fresh food, including sushi?

[Image of: View Braintrust Panelist button]
Dr. Stephen Needel, Managing Partner, Advanced Simulations

This has been going on for years in drug stores, and it will continue to grow in urban areas, as the food deserts will allow for this. In the suburbs not so much, as the choices for quality sushi, and great carry-out foods are everywhere, and Walgreens would not be the first choice for consumers in those areas. Our Discount Drug Mart has been selling "in the bag" whole boneless pork loins and sauerkraut for New Years Eve for two years, and it does take business away from nearby stores.

Everybody wants to sell everything they can, as long as it requires no labor to produce it, which still gives supermarkets an advantage in custom-preparing special orders for now. I'm still waiting for the day Target or Walmart will sell wedding gowns and wedding planning services.

[Image of: View Braintrust Panelist button]
Tony Orlando, Owner, Tony O's Supermarket & Catering

Walgreens is banking on its fresh food offerings "redefining" how it's perceived, and it should be tailoring those options based on the needs/wants of the community the store is located in.

[Image of: View Braintrust Panelist button]
Bill Davis, Director, MB&G Consulting

One size doesn't fit all—especially in retail today.

The biggest challenge of large national retail chains is how to revamp and revitalize stores across the country. Different markets literally have quite different tastes. Even Walmart is recognizing the need to customize both store formats and assortments of products to local market tastes.

With Walmart installing pharmacies and even health clinics in it's stores, Walgreens' CEO seems to be on the right strategy of "deliberately blurring the channels." Every store must literally fight for traffic.

Key success factors for the store of the future are: modular and adjustable. Fixtures and assortments can no longer remained fixed across the country.

[Image of: View Braintrust Panelist button]
Chris Petersen, PhD, President, Integrated Marketing Solutions

Well, CVS is just sitting back and letting Walgreens have the fresh food component so, what does that tell you? Essentially that it won't move the needle. And that operationally, it's a monster.

Will it change perception of the brand and increase visits in the long run? We shall see. Personally, I have my reservations (as in, I doubt it).

[Image of: View Braintrust Panelist button]
Lee Peterson, EVP Creative Services, WD Partners

All the drugstore chains are doing this now, and syndicated data providers (IRI and Nielsen) have been tracking grocery/refrigerated/frozen sales in that channel for some time. It will continue, and grow, because it's convenient. They're not getting into the grocery business as a real competitor to Kroger or whoever, but they're filling a need with a carefully tailored and limited offering.

[Image of: View Braintrust Panelist button]
Warren Thayer, Editor & Managing Partner, Frozen & Refrigerated Buyer

If consumers regularly buy it, retailers will stock it. The idea of traditional drug stores went out the window a number of years ago. Conversely most of the big-box giants have pharmacies and many have clinics. The roles are blurred, if not completely blurry.

Why shouldn't Walgreens offer fresh food? If consumers like the quality, they will return. Walgreens is more convenient to many people than a grocery store, especially in urban areas.

The factor in determining success or failure of the initiative will be consumers. If they consistently buy it, Walgreens will consistently stock it.

[Image of: View Braintrust Panelist button]
Max Goldberg, President, Max Goldberg & Associates

Duane Reade (now part of Walgreens) has used this approach to luring urban shoppers. The challenge for Walgreens is balancing how much effort and resources they invest in fresh food relative to initiatives in health care services. Will CVS differentiate from Walgreens in this regard, with one skewing towards health services and the other towards the corner market?

Which efforts get the most bang for the buck on investment? Some areas of focus may work well for urban, while others work well in suburbia.

[Image of: View Braintrust Panelist button]
Matt Schmitt, President, Chief Strategy & Innovation Officer, Reflect

This issue seems to advocate the need for a car more than seeing Walgreens redefining its role in feeding America.

[Image of: View Braintrust Panelist button]
Gene Hoffman, President/CEO, Corporate Strategies International

The article pretty well identifies the factors that play into the success of these initiatives: Convenience, impulse, fill a need, price right. Walgreens seems to have identified a niche and is filling it.

[Image of: View Braintrust Panelist button]
Naomi K. Shapiro, Strategic Market Communications, Upstream Commerce

One aspect I'm surprised no one has mentioned yet is the margin impact of food. A number of channels have ventured into food to drive traffic—most recently Dollar Stores. The result is usually increased traffic with lower overall gross margins—and the food sales are not 100% incremental. Walgreens is most likely finding the same.

CVS (at least in the northern suburbs of Chicago) is much more tentative with food and appears to place more emphasis on HBC/GM and its extensions (i.e. minute clinics). The margins certainly favor the CVS approach in the long run, though measuring that will be difficult for some time given their move out of tobacco.

[Image of: View Braintrust Panelist button]
Ben Ball, Senior Vice President, Dechert-Hampe

The key line for me in the story is this one: "Don't assume you or the people you know are average Americans." If the Walgreens shopper decides it is worth it, it will by definition redefine its role.

In terms of success or failure factors, they are the same as every other initiative:

  • Assortment
  • Price
  • Product Supply
  • Etc.

[Image of: View Braintrust Panelist button]
David Zahn, Owner, ZAHN Consulting, LLC

As the large national retailers continue to see their core businesses being shared by other national retailers, with little or no previous market experience, we will continue to be surprised by the new things we see with our visits. There is a lot going on within the four walls of a nationwide or even worldwide brick & mortar retailer. This all comes from the ease of acceptance of the cookie cutter store design process.

As the economic depression settled in and fewer discretionary spending dollars were available, the stores were left with severe overages of floor space where impulse and "what's hot" items once lived. What is good for the consumer from all of this is the enormity and scale of the all new 21st century weekly clearance sales. As for retailers, we are seeing great new ideas for floor plans and merchandising as we move into each others markets.

With the drastic loses in revenues for the state governments as a result of failing gaming resorts, it may not be long before we see slot machines appearing for the consumer to use while waiting for a prescription to be filled. Any bets on if this is a near future possibility for market expansion as a result of store space availability?

'gjarnoldjr'

Urban, high foot traffic store, convenience items...sure. Make a drug store (that is the brand) a destination that people get into their cars and travel to for food items...no.

[Image of: View Braintrust Panelist button]
Larry Negrich, Vice President, Marketing, nGage Labs

Carry-away fresh food makes pretty good sense in Walgreens urban, walk-to locations; somewhat less sense in suburban, drive-to locations. Sushi from a cooler is a judgement call in any location.

I don't see made-to-order items on the horizon in chain drug stores any time soon. But the big guys already have drinks coolers, packaged grocery, salty snacks, candy, beer and wine on display. A fresh-today turkey wrap, soda and chips or a salad could be a convenient choice just a few steps from the office building.

My next question is: Can Walgreens squeeze enough incremental business from this to justify the required daily deliveries and in-store process?

[Image of: View Braintrust Panelist button]
James Tenser, Principal, VSN Strategies

Walgreens has proven they have both the ability and drive to push boundaries on what a drug store is and what customers can buy there. In a recent visit to Walgreens in downtown Cincinnati, I noticed every shopper in the checkout line was buying perishable foods. I am sure they will continue to grow and expand their fresh assortment.

Barbara Petrocelli, Marketing Director, Market6

Location, location and location will dictate the course of action. In my opinion, if Walgreens is able to offer quality healthy food products that are consistent are with their tagline "At the Corner of Happy & Healthy" then over time they will redefine their role in urban markets and elsewhere! The key is sticking to the strategy and the change in attitudes and behavior will come....

David Lubert, Industry Principal, Bridge-x Technologies

Walgreens is at the edge of an opportunity for both consumers and the company. Fresh options for strategically located stores could work well for them. Urban locations offer great potential for pick-up items after work — it will take time/testing to get local assortment right. Execution and communication are key to to move the fresh program forward in select urban locations.

Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

For urban high density areas, the key is convenience. Here in San Francisco they have expanded into convenience food in cooler cases and in the Union Square store, it is basically a deli on the ground floor. I don't know if you can call that "redefine the chain"; more like re-define the store in a neighborhood to cater to the busy crowd who may need to pick up a bite and some shampoo at the same time. I do wonder what the affinity analysis of the basket would be in those stores...soda and sushi? Tums and crackers? :-)

[Image of: View Braintrust Panelist button]
Kenneth Leung, Director of Enterprise Industry Marketing, Avaya

Search RetailWire
Follow Us...
[Image of:  Twitter Icon] [Image of:  Facebook Icon] [Image of:  LinkedIn Icon] [Image of:  RSS Icon]

RetailWire's
Getting Started video!

View this quick tutorial and learn all the essentials...

RetailWire Newsletters